##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended October 1, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period
fromto
 Commission File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
  Delaware
    
    41-1978822(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
 
   þ o
  þ o
  o þ




---



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Balance Sheets as of October 1, 2005 and January 1, 2005
    
    
    3Consolidated Statements of Operations for the three and nine month periods ended October 1, 2005 and October 2, 2004
    
    
    4Consolidated Statements of Cash Flow for the nine month periods ended October 1, 2005 and October 2, 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    13ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    23ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    23PART II
    
    OTHER INFORMATIONITEM 6.
    
    EXHIBITS
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    262005 Stock Incentive PlanEmployee Stock Purchase PlanCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 
 October 1, 2005
    
    
    January 1, 2005AssetsCurrent assetsCash and cash equivalents
    
    $
    32,619
    
    
    $
    35,689Short term investments
    
    
    15,614
    
    
    
    15,479Accounts receivable, net
    
    
    44,900
    
    
    
    46,984Inventories, net
    
    
    19,426
    
    
    
    21,719Deferred income taxes
    
    
    3,455
    
    
    
    4,855Other current assets
    
    
    6,942
    
    
    
    3,101Total current assets
    
    
    122,956
    
    
    
    127,827Property, plant and equipment, net
    
    
    21,451
    
    
    
    22,065Goodwill, net
    
    
    147,289
    
    
    
    102,365Intangibles, net
    
    
    42,524
    
    
    
    44,792Deferred income taxes
    
    
    3,266
    
    
    
    2,911Investment in technology and other assets
    
    
    555
    
    
    
    590Total assets
    
    $
    338,041
    
    
    $
    300,550Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    3,693
    
    
    $
    4,237Accrued compensation expenses
    
    
    10,911
    
    
    
    10,783Accrued warranty expense
    
    
    1,470
    
    
    
    1,451Income taxes payable
    
    
    
    
    
    
    2,982Other accrued expenses
    
    
    31,213
    
    
    
    8,835Contingent liability on acquisition
    
    
    
    
    
    
    19,964Total current liabilities
    
    
    47,287
    
    
    
    48,252Accumulated post retirement benefit obligation
    
    
    3,126
    
    
    
    3,126Total liabilities
    
    
    50,413
    
    
    
    51,378Stockholders equityCommon stock, par value $.01 per share; authorized
220,000,000 shares; issued and outstanding:69,426,311 shares at October 1, 2005
and 67,478,544 shares at January 1, 2005
    
    
    694
    
    
    
    675Additional paid-in capital
    
    
    226,211
    
    
    
    210,163Accumulated other comprehensive income
    
    
    2,845
    
    
    
    5,123Retained earnings
    
    
    57,878
    
    
    
    33,211Total stockholders equity
    
    
    287,628
    
    
    
    249,172Total liabilities and stockholders equity
    
    $
    338,041
    
    
    $
    300,550
 The accompanying notes are an integral part of the consolidated financial statements.
 3




---



##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
 
 Three Months Ended
    
    
    Nine Months EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Net sales
    
    $
    61,738
    
    
    $
    52,326
    
    
    $
    189,520
    
    
    $
    148,732Cost of sales
    
    
    11,156
    
    
    
    9,508
    
    
    
    34,130
    
    
    
    27,485Gross profit
    
    
    50,582
    
    
    
    42,818
    
    
    
    155,390
    
    
    
    121,247Operating expensesMarketing and selling
    
    
    22,341
    
    
    
    18,349
    
    
    
    67,491
    
    
    
    52,092Research and development
    
    
    4,995
    
    
    
    4,305
    
    
    
    14,499
    
    
    
    11,466In-process research and
development
    
    
    9,220
    
    
    
    35,000
    
    
    
    9,220
    
    
    
    35,000General and administrative
    
    
    5,217
    
    
    
    5,120
    
    
    
    16,213
    
    
    
    15,206Amortization of intangibles
    
    
    2,200
    
    
    
    1,850
    
    
    
    5,938
    
    
    
    3,969Total operating expenses
    
    
    43,973
    
    
    
    64,624
    
    
    
    113,361
    
    
    
    117,733Operating income (loss)
    
    
    6,609
    
    
    
    (21,806
    )
    
    
    42,029
    
    
    
    3,514Other income (expense)Royalty income
    
    
    505
    
    
    
    627
    
    
    
    1,491
    
    
    
    1,548Interest income
    
    
    298
    
    
    
    231
    
    
    
    933
    
    
    
    541Interest expense
    
    
    (44
    )
    
    
    (357
    )
    
    
    (140
    )
    
    
    (806
    )Other income (expense)
    
    
    (28
    )
    
    
    3
    
    
    
    (1,104
    )
    
    
    (184
    )Total other income
    
    
    731
    
    
    
    504
    
    
    
    1,180
    
    
    
    1,099Income (loss) before income taxes
    
    
    7,340
    
    
    
    (21,302
    )
    
    
    43,209
    
    
    
    4,613Provision for income taxes
    
    
    5,925
    
    
    
    5,000
    
    
    
    18,544
    
    
    
    14,459Net income (loss)
    
    $
    1,415
    
    
    
    ($26,302
    )
    
    $
    24,665
    
    
    
    ($9,846
    )Net income (loss) per shareBasic
    
    $
    0.02
    
    
    
    ($0.39
    )
    
    $
    0.36
    
    
    
    ($0.15
    )Diluted
    
    $
    0.02
    
    
    
    ($0.39
    )
    
    $
    0.34
    
    
    
    ($0.15
    )Weighted average common shares outstandingBasic
    
    
    69,344
    
    
    
    67,338
    
    
    
    68,741
    
    
    
    66,858Diluted
    
    
    72,096
    
    
    
    67,338
    
    
    
    71,658
    
    
    
    66,858
 The accompanying notes are an integral part of the consolidated financial statements.
 4




---



##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Condensed Statements of Cash Flow
 
 Nine Months EndedOctober 1, 2005
    
    
    October 2, 2004Cash flows from operating activitiesNet income (loss)
    
    $
    24,665
    
    (
    $
    9,846
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activitiesDepreciation
    
    
    4,030
    
    
    
    5,338Loss on asset disposals
    
    
    232
    
    
    
    16Amortization of intangibles, including deferred financing costs
    
    
    5,938
    
    
    
    4,419Non-cash in-process research and development charge
    
    
    9,220
    
    
    
    35,000Non-cash deferred compensation
    
    
    61
    
    
    
    53Income tax benefit related to stock options
    
    
    4,079
    
    
    
    1,477Change in net deferred taxes
    
    
    912
    
    
    
    2,496Changes in operating assets and liabilitiesAccounts receivable
    
    
    654
    
    
    
    (1,076
    )Inventories
    
    
    1,991
    
    
    
    (50
    )Accounts payable and accrued expenses
    
    
    (1,654
    )
    
    
    (4,172
    )Other assets
    
    
    (4,211
    )
    
    
    (257
    )Net cash provided by operating activities
    
    
    45,917
    
    
    
    33,398Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (3,703
    )
    
    
    (1,804
    )Purchase of business, net of cash acquired
    
    
    (56,309
    )
    
    
    (40,075
    )Purchase of investments in technology
    
    
    (1,620
    )
    
    
    (2,500
    )Purchase of short term investments
    
    
    (30,340
    )
    
    
    (12,634
    )Sale of short term investments
    
    
    30,204
    
    
    
    Net cash used in investing activities
    
    
    (61,768
    )
    
    
    (57,013
    )Cash flows from financing activitiesIssuance of common stock
    
    
    11,926
    
    
    
    5,326Payments on long-term debt
    
    
    
    
    
    
    (16,364
    )Net cash provided by (used in) financing activities
    
    
    11,926
    
    
    
    (11,038
    )Effect of currency exchange rates on cash
    
    
    855
    
    
    
    (529
    )Net decrease in cash and cash equivalents
    
    
    (3,070
    )
    
    
    (35,182
    )Cash and cash equivalents at beginning of period
    
    
    35,689
    
    
    
    58,953Cash and cash equivalents at end of period
    
    $
    32,619
    
    
    $
    23,771Supplemental disclosureCash paid for interest
    
    $
    0
    
    
    $
    314Cash paid for income taxes
    
    $
    14,843
    
    
    $
    13,111
 The accompanying notes are an integral part of the consolidated financial statements.
 5




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1. Basis of Presentation
     NOTE 2. Stock-Based Compensation
 Accounting for Stock Issued to Employees
 Accounting for
Stock-Based Compensation
 Three Months Ended
    
    Nine Months Ended(in thousands, except per share data)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004Net income (loss), as reported
    
    $
    1,415
    
    
    ($
    26,302
    )
    
    $
    24,665
    
    
    ($
    9,846
    )Stock-based employee compensation expense
included in reported income (loss), net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Total stock-based employee compensation
expense determined under fair-value based
method for all awards, net of tax
    
    
    (1,945
    )
    
    
    (1,338
    )
    
    
    (5,200
    )
    
    
    (3,513
    )Pro forma net income (loss)
    
    
    ($530
    )
    
    ($
    27,640
    )
    
    $
    19,465
    
    
    ($
    13,344Net income (loss) per shareAs reportedBasic
    
    $
    0.02
    
    
    ($
    0.39
    )
    
    $
    0.36
    
    
    ($
    0.15
    )Diluted
    
    $
    0.02
    
    
    ($
    0.39
    )
    
    $
    0.34
    
    
    ($
    0.15
    )Pro formaBasic
    (
    $
    0.01
    )
    
    ($
    0.41
    )
    
    $
    0.28
    
    
    ($
    0.20
    )Diluted
    (
    $
    0.01
    )
    
    ($
    0.41
    )
    
    $
    0.27
    
    
    ($
    0.20
    )
 6




---



##### Table of Contents



NOTE 3. Earnings per Share
  Three Months Ended
    
    Nine Months Ended(in thousands, except per share data)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004Net income (loss)
    
    $
    1,415
    
    
    ($
    26,302
    )
    
    $
    24,665
    
    
    ($
    9,846
    )Weighted-average shares
outstanding for basic net income (loss)
per share
    
    
    69,344
    
    
    
    67,338
    
    
    
    68,741
    
    
    
    66,858Dilutive effect of stock options
    
    
    2,752
    
    
    
    
    
    
    
    2,917
    
    
    
    Adjusted weighted-average
shares outstanding and assumed conversions
for diluted net income (loss) per share
    
    
    72,096
    
    
    
    67,338
    
    
    
    71,658
    
    
    
    66,858Net income (loss) per shareBasic
    
    $
    0.02
    
    
    ($
    0.39
    )
    
    $
    0.36
    
    
    ($
    0.15
    )Diluted
    
    $
    0.02
    
    
    ($
    0.39
    )
    
    $
    0.34
    
    
    ($
    0.15
    )
  NOTE 4. Inventories
  (in thousands)
    
    October 1, 2005
    
    January 1, 2005Raw materials
    
    $
    5,077
    
    
    $
    5,191Work in process
    
    
    2,612
    
    
    
    2,405Finished goods
    
    
    13,574
    
    
    
    15,866Obsolescence reserves
    
    
    (1,837
    )
    
    
    (1,743
    )Net inventories
    
    $
    19,426
    
    
    $
    21,719
 NOTE 5. Warranties
  7




---



##### Table of Contents



Three Months Ended
    
    Nine Months Ended(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004Balance, beginning of period
    
    $
    1,480
    
    
    $
    1,319
    
    
    $
    1,451
    
    
    $
    1,338Provisions for warranty
    
    
    159
    
    
    
    175
    
    
    
    310
    
    
    
    322Claims processed
    
    
    (169
    )
    
    
    (65
    )
    
    
    (291
    )
    
    
    (231
    )Balance, end of period
    
    $
    1,470
    
    
    $
    1,429
    
    
    $
    1,470
    
    
    $
    1,429
 NOTE 6. Acquisitions
 TherMatrx
  TherMatrx Dose Optimized Thermotherapy
    (in thousands)
    
    AmountDeveloped technology, customer relationships and other intangible assets
    
    $
    31,000In-process research and development
    
    
    35,000Tangible assets acquired, net of liabilities assumed
    
    
    5,721Deferred tax liability on assets acquired
    
    
    (7,763
    )Goodwill
    
    
    46,497Purchase price, including earned contingent payments, net of cash acquired,
accrued through October 1, 2005
    
    $
    110,455
   8




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended(in thousands, except per share data)
    

October
2, 2004
    
    

October 2, 2004Revenue
    
    
    $52,864
    
    
    
    $158,976Net income (loss)
    
    
    ($34,956
    )
    
    
    ($16,971
    )Net income (loss) per shareBasic
    
    
    ($0.52
    )
    
    
    ($0.25
    )Diluted
    
    
    ($0.52
    )
    
    
    ($0.25
    )
  Ovion
  Ovion
   (in thousands)
    
    AmountIn-process research and development (including $0.7 million in acquisition costs)
    
    $
    9,220Intangible royalty agreement (including $0.2 million in acquisition costs)
    
    
    2,050Liabilities assumed, net of tangible assets acquired
    
    
    (732
    )Deferred tax liability on assets acquired
    
    
    (131
    )Initial purchase price, net of cash acquired, through October 1, 2005
    
    $
    10,407
 Goodwill and Other
Intangible Assets
 9




---



##### Table of Contents



NOTE 7 New Accounting Pronouncements
 Inventory
Costs Inventory Pricing.
 Share-based Payment
   Accounting for Stock Issued to Employees Notes to Consolidated Financial Statements  No. 2.
 NOTE 8. Comprehensive Income
   Three Months Ended
    
    Nine Months Ended(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004Net income (loss)
    
    $
    1,415
    
    
    
    ($26,302
    )
    
    $
    24,665
    
    
    
    ($9,846
    )Foreign currency
translation gain/(loss),
net of taxes
    
    
    (17
    )
    
    
    172
    
    
    
    (2,278
    )
    
    
    (611
    )Comprehensive income (loss)
    
    $
    1,398
    
    
    
    ($26,130
    )
    
    $
    22,387
    
    
    
    ($10,457
    )
 10




---



##### Table of Contents



NOTE 9. Industry Segment Information and Foreign Operations
    Three Months Ended and As of
    
    Nine Months Ended and As of(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004United StatesNet sales
    
    $
    49,640
    
    
    $
    43,271
    
    
    $
    148,710
    
    
    $
    117,512Long-lived assets
    
    $
    197,232
    
    
    $
    160,390
    
    
    $
    197,232
    
    
    $
    160,390InternationalNet sales
    
    $
    12,098
    
    
    $
    9,055
    
    
    $
    40,810
    
    
    $
    31,220Long-lived assets
    
    $
    14,586
    
    
    $
    12,403
    
    
    $
    14,586
    
    
    $
    12,403
 NOTE 10. Goodwill and Intangible Assets
  Nine Months Ended(in thousands)
    
    October 1, 2005Goodwill, beginning of the year, net
    
    $
    102,365Additions
    
    
    46,496Effect of currency translation
    
    
    (1,572
    )Goodwill, end of third quarter, net
    
    $
    147,289
 Notes to
Consolidated Financial Statements  No. 6.
 October 1, 2005
    
    January 1, 2005Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueAmortizedPatents
    
    $
    10,127
    
    
    
    ($7,427
    )
    
    $
    2,700
    
    
    $
    10,127
    
    
    
    ($6,581
    )
    
    $
    3,546Licenses
    
    
    6,911
    
    
    
    (3,323
    )
    
    
    3,588
    
    
    
    5,291
    
    
    
    (1,529
    )
    
    
    3,762Developed technology and
customer relationships
    
    
    48,853
    
    
    
    (16,375
    )
    
    
    32,478
    
    
    
    48,853
    
    
    
    (13,140
    )
    
    
    35,713Intangible royalty agreement
    
    
    2,050
    
    
    
    (64
    )
    
    
    1,986
    
    
    
    
    
    
    
    
    
    
    
    Total amortized intangible assets
    
    
    67,941
    
    
    
    (27,189
    )
    
    
    40,752
    
    
    
    64,271
    
    
    
    (21,250
    )
    
    
    43,021UnamortizedTrademarks
    
    
    2,233
    
    
    
    (461
    )
    
    
    1,772
    
    
    
    2,233
    
    
    
    (462
    )
    
    
    1,771Total intangible assets
    
    $
    70,174
    
    
    
    ($27,650
    )
    
    $
    42,524
    
    
    $
    66,504
    
    
    
    ($21,712
    )
    
    $
    44,792
 Three Months Ended
    
    Nine Months Ended(in thousands)
    
    October 1, 2005
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004Amortization expense
    
    $
    2,200
    
    
    $
    1,850
    
    
    $
    5,938
    
    
    $
    3,969
 11




---



##### Table of Contents



NOTE 11. Credit Agreement
    Credit facilityCovenant
    
    requirements
    
    ActualLeverage ratio
    
    < 2.75 to 1.00
    
    
    0.29 to 1.00Interest coverage ratio
    
    > 3.00 to 1.00
    
    
    592.6 to 1.00
 12




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements not of historical fact may be considered forward-looking statements.
Written words such as may, expect, believe, anticipate, or estimate, or other variations
of these or similar words, identify such forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may differ materially from
those expressed in such forward-looking statements. Important factors known to us that could cause
such material differences are identified in Risk Factors. We undertake no obligation to correct
or update any forward-looking statements, whether as a result of new information, future events, or
otherwise. You are advised, however, to consult any future disclosures we make on related subjects
in future filings with the SEC.
 Critical Accounting Policies and Estimates
  Overview
   Three Months Ended(in thousands, except per share data)
    
    October 1, 2005
    
    October 2, 2004Net income (loss), as reported
    
    $
    1,415
    
    
    
    ($26,302
    )IPR&D charges
    
    $
    9,220
    
    
    $
    35,000Diluted earnings per share, as reported
    
    $
    0.02
    
    
    
    ($0.39
    )IPR&D charges, per diluted share
    
    $
    0.13
    
    
    $
    0.52
  AMS 700 Tactile Pump, Monarc®, Apogee Perigee
 13




---



##### Table of Contents



Results of Operations
 Sales Trends
   Three Months Ended
    
    Nine Months EndedOctober 1,
    
    October 2,
    
    
    
    
    
    
    
    
    
    October 1,
    
    October 2,(in thousands)
    
    2005
    
    2004
    
    $ Increase
    
    % Increase
    
    2005
    
    2004
    
    $ Increase
    
    % IncreaseSalesProduct LineMens pelvic healthErectile restoration
    
    $
    18,766
    
    
    $
    18,620
    
    
    $
    146
    
    
    
    0.8
    %
    
    $
    60,140
    
    
    $
    54,004
    
    
    $
    6,136
    
    
    
    11.4
    %Continence
    
    
    12,239
    
    
    
    11,143
    
    
    
    1,096
    
    
    
    9.8
    %
    
    
    38,889
    
    
    
    35,575
    
    
    
    3,314
    
    
    
    9.3
    %Prostate treatment
    
    
    6,719
    
    
    
    5,514
    
    
    
    1,205
    
    
    
    21.9
    %
    
    
    20,101
    
    
    
    7,769
    
    
    
    12,332
    
    
    
    158.7
    %Total mens pelvic
health
    
    
    37,724
    
    
    
    35,277
    
    
    
    2,447
    
    
    
    6.9
    %
    
    
    119,130
    
    
    
    97,348
    
    
    
    21,782
    
    
    
    22.4
    %Womens pelvic health
    
    
    24,014
    
    
    
    17,049
    
    
    
    6,965
    
    
    
    40.9
    %
    
    
    70,390
    
    
    
    51,384
    
    
    
    19,006
    
    
    
    37.0
    %Total
    
    $
    61,738
    
    
    $
    52,326
    
    
    $
    9,412
    
    
    
    18.0
    %
    
    $
    189,520
    
    
    $
    148,732
    
    
    $
    40,788
    
    
    
    27.4
    %GeographyUnited States
    
    $
    49,640
    
    
    $
    43,271
    
    
    $
    6,369
    
    
    
    14.7
    %
    
    $
    148,710
    
    
    $
    117,512
    
    
    $
    31,198
    
    
    
    26.5
    %International
    
    
    12,098
    
    
    
    9,055
    
    
    
    3,043
    
    
    
    33.6
    %
    
    
    40,810
    
    
    
    31,220
    
    
    
    9,590
    
    
    
    30.7
    %Total
    
    $
    61,738
    
    
    $
    52,326
    
    
    $
    9,412
    
    
    
    18.0
    %
    
    $
    189,520
    
    
    $
    148,732
    
    
    $
    40,788
    
    
    
    27.4
    %
 Three Months Ended

    
    Nine Months Ended2005
    
    
    2004
    
    
    2005
    
    
    2004Percent of total salesProduct LineMens pelvic healthErectile restoration
    
    
    30
    %
    
    
    36
    %
    
    
    32
    %
    
    
    36
    %Continence
    
    
    20
    %
    
    
    21
    %
    
    
    21
    %
    
    
    24
    %Prostate treatment
    
    
    11
    %
    
    
    11
    %
    
    
    11
    %
    
    
    5
    %Total mens pelvic
health
    
    
    61
    %
    
    
    67
    %
    
    
    63
    %
    
    
    65
    %Womens pelvic health
    
    
    39
    %
    
    
    33
    %
    
    
    37
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %GeographyUnited States
    
    
    80
    %
    
    
    83
    %
    
    
    78
    %
    
    
    79
    %International
    
    
    20
    %
    
    
    17
    %
    
    
    22
    %
    
    
    21
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 14




---



##### Table of Contents



Net Sales
 Mens pelvic health products. Tactile Pump AMS 700
 Tactile Pump InhibiZone®
 AMS 800 Artificial Urinary Sphincter Invance® ,
  Womens pelvic health products. Apogee Perigee Monarc Monarc InFast SPARC SPARC Her Option® Her Option
 International sales and foreign exchange effects.
 15




---



##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedOctober 1,
    
    October 2,
    
    
    
    
    
    October 1,
    
    October 2,(in thousands)
    
    2005
    
    2004
    
    $ Change
    
    % Change
    
    2005
    
    2004
    
    $ Change
    
    % ChangeNet sales
    
    $
    61,738
    
    
    $
    52,326
    
    
    $
    9,412
    
    
    
    18.0
    %
    
    $
    189,520
    
    
    $
    148,732
    
    
    $
    40,788
    
    
    
    27.4
    %Cost of sales
    
    
    11,156
    
    
    
    9,508
    
    
    
    1,648
    
    
    
    17.3
    %
    
    
    34,130
    
    
    
    27,485
    
    
    
    6,645
    
    
    
    24.2
    %Gross profit
    
    
    50,582
    
    
    
    42,818
    
    
    
    7,764
    
    
    
    18.1
    %
    
    
    155,390
    
    
    
    121,247
    
    
    
    34,143
    
    
    
    28.2
    %Operating expensesMarketing and selling
    
    
    22,341
    
    
    
    18,349
    
    
    
    3,992
    
    
    
    21.8
    %
    
    
    67,491
    
    
    
    52,092
    
    
    
    15,399
    
    
    
    29.6
    %Research and development
    
    
    4,995
    
    
    
    4,305
    
    
    
    690
    
    
    
    16.0
    %
    
    
    14,499
    
    
    
    11,466
    
    
    
    3,033
    
    
    
    26.5
    %In-process research and
development
    
    
    9,220
    
    
    
    35,000
    
    
    
    (25,780
    )
    
    
    -73.7
    %
    
    
    9,220
    
    
    
    35,000
    
    
    
    (25,780
    )
    
    
    -73.7
    %General and administrative
    
    
    5,217
    
    
    
    5,120
    
    
    
    97
    
    
    
    1.9
    %
    
    
    16,213
    
    
    
    15,206
    
    
    
    1,007
    
    
    
    6.6
    %Amortization of
intangibles
    
    
    2,200
    
    
    
    1,850
    
    
    
    350
    
    
    
    18.9
    %
    
    
    5,938
    
    
    
    3,969
    
    
    
    1,969
    
    
    
    49.6
    %Total operating expenses
    
    
    43,973
    
    
    
    64,624
    
    
    
    (20,651
    )
    
    
    -32.0
    %
    
    
    113,361
    
    
    
    117,733
    
    
    
    (4,372
    )
    
    
    -3.7
    %Operating income (loss)
    
    
    6,609
    
    
    
    (21,806
    )
    
    
    28,415
    
    
    
    -130.3
    %
    
    
    42,029
    
    
    
    3,514
    
    
    
    38,515
    
    
    
    1096.0
    %Royalty income
    
    
    505
    
    
    
    627
    
    
    
    (122
    )
    
    
    -19.5
    %
    
    
    1,491
    
    
    
    1,548
    
    
    
    (57
    )
    
    
    -3.7
    %Interest income
    
    
    298
    
    
    
    231
    
    
    
    67
    
    
    
    29.0
    %
    
    
    933
    
    
    
    541
    
    
    
    392
    
    
    
    72.5
    %Interest expense
    
    
    (44
    )
    
    
    (357
    )
    
    
    313
    
    
    
    87.7
    %
    
    
    (140
    )
    
    
    (806
    )
    
    
    666
    
    
    
    82.6
    %Other income (expense)
    
    
    (28
    )
    
    
    3
    
    
    
    (31
    )
    
    
    -1033.3
    %
    
    
    (1,104
    )
    
    
    (184
    )
    
    
    (920
    )
    
    
    500.0
    %Income (loss) before income taxes
    
    
    7,340
    
    
    
    (21,302
    )
    
    
    28,642
    
    
    
    -134.5
    %
    
    
    43,209
    
    
    
    4,613
    
    
    
    38,596
    
    
    
    836.7
    %Provision for income taxes
    
    
    5,925
    
    
    
    5,000
    
    
    
    925
    
    
    
    18.5
    %
    
    
    18,544
    
    
    
    14,459
    
    
    
    4,085
    
    
    
    28.3
    %Net income (loss)
    
    $
    1,415
    
    
    
    ($26,302
    )
    
    $
    27,717
    
    
    
    -105.4
    %
    
    $
    24,665
    
    
    
    ($9,846
    )
    
    $
    34,511
    
    
    
    -350.5
    %
 Percent of Sales
    
    
    Percent of SalesThree Months Ended

    
    Nine Months Ended(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    18.1
    %
    
    
    18.2
    %
    
    
    18.0
    %
    
    
    18.5
    %Gross profit
    
    
    81.9
    %
    
    
    81.8
    %
    
    
    82.0
    %
    
    
    81.5
    %Operating expensesMarketing and selling
    
    
    36.2
    %
    
    
    35.1
    %
    
    
    35.6
    %
    
    
    35.0
    %Research and development
    
    
    8.1
    %
    
    
    8.2
    %
    
    
    7.7
    %
    
    
    7.7
    %In-process research and
development
    
    
    14.9
    %
    
    
    66.9
    %
    
    
    4.9
    %
    
    
    23.5
    %General and administrative
    
    
    8.5
    %
    
    
    9.8
    %
    
    
    8.6
    %
    
    
    10.2
    %Amortization of
intangibles
    
    
    3.6
    %
    
    
    3.5
    %
    
    
    3.1
    %
    
    
    2.7
    %Total operating expenses
    
    
    71.2
    %
    
    
    123.5
    %
    
    
    59.8
    %
    
    
    79.2
    %Operating income
    
    
    10.7
    %
    
    
    -41.7
    %
    
    
    22.2
    %
    
    
    2.4
    %Royalty income
    
    
    0.8
    %
    
    
    1.2
    %
    
    
    0.8
    %
    
    
    1.0
    %Interest income
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    0.5
    %
    
    
    0.4
    %Interest expense
    
    
    -0.1
    %
    
    
    -0.7
    %
    
    
    -0.1
    %
    
    
    -0.5
    %Other income (expense)
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    -0.6
    %
    
    
    -0.1
    %Income before income taxes
    
    
    11.9
    %
    
    
    -40.7
    %
    
    
    22.8
    %
    
    
    3.1
    %Provision for income taxes
    
    
    9.6
    %
    
    
    9.6
    %
    
    
    9.8
    %
    
    
    9.7
    %Net income (loss)
    
    
    2.3
    %
    
    
    -50.3
    %
    
    
    13.0
    %
    
    
    -6.6
    %
 16




---



##### Table of Contents



Cost of sales
 Marketing and selling.
 Research and development.
 In-process research and development Notes to Consolidated Financial
Statements  No. 6 .
 General and administrative.
 Amortization of intangibles.
 Royalty income.
 Interest income.
 Interest expense.
 Other income/(expense).
 17




---



##### Table of Contents



Income taxes.
 Three Months Ended
    
    Nine Months EndedOctober 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004Effective tax rate
    
    
    80.7
    %
    
    
    -23.5
    %
    
    
    42.9
    %
    
    
    313.4
    %IPR&D charge impact to tax rate
    
    
    44.9
    %
    
    
    -60.0
    %
    
    
    7.5
    %
    
    
    276.9
    %
  Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 Cash flows from financing activities.
 Cash commitments.
 TherMatrx
 18




---



##### Table of Contents



Notes to
Consolidated Financial Statements  No. 6
 Notes to
Consolidated Financial Statements  No. 11
  Risk Factors
  Supplier Risks
 InhibiZone
 Potential Product Recalls
  Continued Physician Use and Endorsement of our Products
  19




---



##### Table of Contents



Successful Introduction of New Products and Product Improvements
  Continued Use of Non-Invasive Treatment Alternatives
  Actions Related to Reimbursement for Procedures Using our Products
  Regulatory Approvals and Clinical Results
  Intellectual Property Lawsuits
  20




---



##### Table of Contents



Product Liability Lawsuits
  Costs of Physician Malpractice Insurance
  Acquisition Integration
  International Sales
  Manufacturing Facility
  Ongoing Compliance with Section 404 of the Sarbanes-Oxley Act of 2002
  Expensing of Stock Options as Required by SFAS 123(R)
 Share-Based
Payment
 21




---



##### Table of Contents



Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 22




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
  Currency
    Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  23




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing31.1
    
    Certification of Chief Executive
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
    
    Filed with this Report.31.2
    
    Certification of Chief Financial
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
    
    Filed with this Report.32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report.10.1
    
    2005 Stock Incentive Plan (as
amended through May 5, 2005)
    
    Filed with this Report10.2
    
    Employee Stock Purchase Plan (as
amended through October 26, 2005)
    
    Filed with this Report
 24




---



##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCNovember 10, 2005
    
    
    
    By
    
    /s/ Martin J. EmersonDate
    
    
    
    
    
    Martin J. EmersonPresident and Chief Executive OfficerNovember 10, 2005
    
    
    
    By
    
    /s/ Carmen L. DiersenDate
    
    
    
    
    
    Carmen L. DiersenExecutive Vice President, Chief FinancialOfficer and Corporate Secretary (PrincipalFinancial and Accounting Officer)
 25




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
 For the Fiscal Quarter Ended October 1, 2005
 Item No.
    
    Item
    
    Filing Method31.1
    
    Certification of Chief
Executive Officer
pursuant to Section 302
of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report on Form 10-Q.31.2
    
    Certification of Chief
Financial Officer
pursuant to Section 302
of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report on Form 10-Q.32.1
    
    Certification pursuant
to 18 U.S.C. Section
1350, as adopted
pursuant to Section 906
of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report on Form 10-Q.10.1
    
    2005 Stock Incentive
Plan (as amended
through May 5, 2005)
    
    Filed with this Report on Form 10-Q10.2
    
    Employee Stock Purchase
Plan (as amended
through October 26,
2005)
    
    Filed with this Report on Form 10-Q
 26